Momentum investing is a popular strategy used by many investors. But what is it, and is it right for you? In this post, William Schantz goes over the pros and cons of momentum investing so you can make an informed decision.
Pros And Cons of Momentum Investing
Momentum investing is a strategy that involves buying stocks that have been rising in price and selling them after they have peaked. Many investors believe that momentum investing can be a profitable way to trade the markets, but there are also some risks associated with this strategy.
Before deciding whether or not momentum investing is right for you, William Schantz recommends gaining a deep understanding of the pros and cons of this approach.
Pros of Momentum Investing
1. You can make money even if the overall market is falling.
If you only invest in stocks that are going up, then you will still make money even if the overall stock market is in a downward trend. This can be helpful during periods of market volatility when it’s difficult to predict which way the market will go.
2. It’s a relatively simple strategy to learn and implement.
Momentum investing doesn’t require a lot of complicated analysis. You can simply look at a stock’s price chart to see if it’s been rising over time and then make your decision accordingly. This makes the strategy relatively easy to learn and implement.
3. There is some evidence that momentum investing works.
There have been numerous academic studies that have found evidence for the existence of momentum in financial markets. This suggests that, at least in some cases, buying stocks that are rising in price can be a profitable strategy.
Cons of Momentum Investing
1. Momentum investing can be risky.
While you can make money by investing in stocks that are going up, you can also lose money if the stock price falls after you buy it. This is why momentum investing is often considered to be a high-risk strategy.
2. It isn’t easy to time the market correctly.
Even if you identify a stock that looks like it has good momentum, it can be difficult to predict exactly when the price will peak. If you wait too long to sell, then you may miss out on profits; if you sell too early, then you may end up selling at a loss.
3. There is no guarantee that momentum will continue.
Just because a stock has been rising in price doesn’t mean that the momentum will continue, says William Schantz. There is always the possibility that the stock price will start to fall, even after you have bought it.
Momentum investing is a type of stock trading strategy that tries to take advantage of the continuance of previous trends in prices. The theory behind it is that as a stock or market has been going up (or down), more and more investors are getting on board, which will continue to push the price in the same direction. William Schantz recommends that you fully understand all the pros and cons of it before deciding to employ the strategy.